AMERICAS NEWS: Building blocks

GoldenTree InSite Partners is used to emerging markets after years spent targeting Brazil real estate. Now though the New York-based firm is actively buying in an “emerging” market much closer to home – the US.

Despite the US being one of the world’s most developed real estate markets, the level of distress being seen in some sectors has prompted many professionals to dub it the next emerging market. And after two years largely absent from the US, GoldenTree InSite is one of those firms who believe the opportunities on hand are too compelling to ignore.

US homebuilding

“We have been focused on Brazil and stopped investing in the US for over two years as we couldn’t find anything with the appropriate risk-adjusted returns,” said GoldenTree InSite president and founder Tom Shapiro.

GoldenTree InSite last month closed the first deal of a joint venture with Texas homebuilder LGI Homes buying 175 improved residential lots in the Chisholm Springs subdivision in Fort Worth, Texas. The venture will see the firm invest $50 million in equity, as part of its wider strategy of investing up to $500 million in residential land and development projects in the US. GoldenTree InSite last year teamed up with another homebuilder, Hovnanian Enterprises, to buy and develop residential housing in Chicago and Palm Beach County, Florida.

Shapiro said the focus was primarily on broken condo and land deals, arguing there were still too few opportunities in the office, retail and industrial sectors owing to non-stable net operating incomes and banks’ willingness to restructure and extend debt coming due on the assets.

Projects in good markets are attracting tremendous demand so there is a general consensus that Armageddon is off the table and that the US is on the road to recovery.

GoldenTree InSite president and founder Tom Shapiro

Buying land for roughly 10 cents on the dollar, Shapiro said the firm was underwriting the deals on an unlevered basis, with expectations of holding the asset for between three to five years. “Even if there is a double dip in the economy, it won’t be an issue,” he said. “We can carry the properties through the cycle. When you pay 10 cents on the dollar for a good asset you get great convexity. Land is like a derivative.”

When GoldenTree InSite closed its first US deal last October, the firm was largely targeting finished residential lots, whereby all the infrastructure and utility work had been completed and all that was needed was for a homebuilder to actually construct the property. The strategy was to acquire finished lots that could be sold to homebuilders in a few years when the residential for-sale markets started to recover.

With homebuilders regaining their liquidity, though, competition for distressed residential deals has increased markedly in the past few months. Shapiro said the firm today was targeting raw, but entitled, land close to established residential areas in California, Arizona, Nevada, Texas, Florida and Illinois.
“I’m amazed at how quickly things have picked up, especially since October,” he said. “Projects in good markets are attracting tremendous demand so there is a general consensus that Armageddon is off the table and that the US is on the road to recovery.”

GoldenTree InSite, which has $1.2 billion of equity under management, last month hired former Lehman Brothers senior vice president Steven Gorey as chief operating officer to oversee the firm’s day-to-day activities. For Shapiro, the appointment illustrates the firm’s growth plans over the next two years. The US, he said, can expect to be a major part of that growth strategy.